EC 304
Assignment #4
Final revised numbers for second-quarter Gross Domestic Product (GDP) and its components will be released on Friday. For this assignment, I would like you to look at real GDP growth over the past year and to discuss the components of spending that have driven growth each quarter. In other words, starting with real GDP growth for the third quarter of 2001 explain the main forces either adding to or subtracting from growth each quarter through the second quarter of 2002. For example, during some quarters the major force might be growth in consumer demand or exports or inventories, etc. Can you highlight the main causes of the turnaround in growth in the last quarter of 2001 and the first quarter of 2002? Likewise, what seems to be behind the slowdown in the economy in the second quarter of 2002?
As part of the GDP release, the Commerce Department's Bureau of Economic Analysis provides a table ("Table 2" in the official release) indicating the contribution of different components to GDP growth each quarter. This table might be a useful starting point in developing your analysis. You may also want to discuss what the recent pattern of growth/sources of growth suggests for economic growth in the third and fourth quarters of 2002.
Also, I would like you to compare the growth rates of real Gross Domestic Income (GDI) with the growth rates of real GDP over this four-quarter period. Explain briefly why these growth rates differ, i.e., why is GDP not equal to GDI. Note: Only nominal GDI is provided in these tables, so you will need to calculate real GDI yourself. To compute real GDI you should deflate nominal GDI (from Table 8) using the price deflator for GDP (from Table 5), since the BEA does not publish a separate deflator for GDI. After computing the level of real GDI, you will simply compute growth rates for each quarter expressed at an annual rate to compare with the growth rates provided for real GDP. Make sure you renormalize the deflator by dividing it by 100 when computing real GDI or otherwise the level of real GDI will be incorrect (although the growth rates you calculate would be unaffected!).
Note: The GDP link page at the Bureau of Economic Analysis site is: http://www.bea.doc.gov/bea/dn1.htm
You will want to look at the latest release dated September 27, 2002.
Please turn in this assignment in class next Tuesday, October 1.